Twitter's Mobile Ads Begin to Click

Majority of Revenue on Social Network Comes from Phones; One Advertiser Calls Results Staggering

By

Shira Ovide

Updated June 28, 2012 8:16 p.m. ET

Twitter Inc. is showing early signs of success selling advertising on mobile devices, an area that is bedeviling Internet companies including Facebook Inc.FB-1.26% and Google Inc.

On most days, Twitter is now generating the majority of its revenue from ads shown to its users on mobile gadgets, rather than from ads on Twitter.com, company executives said. One key reason: People who see a Twitter ad on their phones are more likely to click or interact with it in some way, which is how Twitter gets paid for advertisements.

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The San Francisco company has only been offering mobile ads in earnest since April, and some companies buying Twitter ads said they haven't kept tabs on the effectiveness of their campaigns on mobile devices.

But P.F. Chang's China Bistro Inc. is among the advertisers that say they were surprised at how many people are clicking on Twitter mobile ads.

The Scottsdale, Ariz.-based restaurant chain this winter spent $25,000 to pitch a Lunar New Year promotion to people on Twitter. P.F. Chang's arranged to push posts promoting dining rewards to Twitter users, including those searching for terms such as "Chinese New Year," on their mobile phones or their personal computers.

In the first four days of the campaign, P.F. Chang's said roughly 1 million people clicked, recirculated or otherwise interacted with the Twitter ad. Of those people, roughly 70% did so from mobile devices rather than computers.

As P.F. Chang's began seeing the results, the company quickly shifted that entire Twitter ad budget to mobile, said Jason Miller, digital content and community manager for P.F. Chang's.

"The results were staggering," Mr. Miller said. He added that P.F. Chang's in April kicked off another $25,000 Twitter ad campaign to pitch lunch offerings. Mr. Miller said it hasn't been as effective in generating clicks or in pushing up restaurant sales.

He speculated that Twitter ads may be better for time-sensitive events rather than for awareness-building efforts. "That may be where Twitter ads fall flat," Mr. Miller said.

Twitter says its mobile-advertising business is working because a company can easily convert any tweet into an ad.

The format of ads on Twitter's mobile and desktop sites are the same, and advertisers pay the same rate no matter the platform. On many mobile services including Google's, ad rates are lower in part because advertiser demand is lower.

Twitter also says its users are more active on mobile devices, which may explain why interaction with ads is higher, too. About 60% of its 140 million monthly users access the service on mobile devices.

"We know that mobile is how people access Twitter, it's where people are overall, and we know it's where the business is," said Adam Bain, Twitter's president of global revenue.

Twitter, which is closely held, declined to specify its ad revenue. But eMarketer Inc. expects Twitter to produce $259.9 million from advertising this year, up from an estimated $139.5 million in 2011. The research firm and other analysts don't break out Twitter's revenue forecasts from mobile devices.

Investor expectations are high that Twitter, which has a private-market valuation of roughly $8.4 billion, can amp up its advertising sales ahead of an initial public offering that people close to the company expect in a year or more.

Overall, the potential growth in mobile advertising is enormous, but elusive for many companies. U.S. advertising on cellphones and tablets reached $1.6 billion in 2011—only about 5% of all ad spending, according to the Interactive Advertising Bureau.

Some research shows consumers are more likely to notice ads on their phones, in part because they still are novel. But smaller screen sizes than PCs, less sophisticated ad targeting and wariness by advertisers is holding down ad rates or spending on mobile devices.

Executives at Google have said they are devoting resources to close gaps in the ad rates they make from mobile devices compared with PCs. The lower cost of Google's mobile ads compared with those viewed on a desktop have contributed to an overall downturn in the average amount paid by advertisers every time someone clicks on an ad, the company has said.

Google recently made it simpler for more than one million of its advertisers to buy ads across platforms.

In October, the company said it was on pace to generate $2.5 billion annually in mobile-ad revenue, its last public figure on the topic. The company made about $36.5 billion in revenue from advertising last year.

Facebook, which made $3.15 billion last year from advertising, has only begun experimenting with mobile ads, selling what it calls "sponsored stories," in which marketers pay Facebook to republish positive messages that users post about their brand.

The mobile-ad push is crucial given that more than half of the social network's 900 million users access the site on mobile devices.

"We've seen powerful indicators that when people see sponsored stories on mobile they engage," said Carolyn Everson, Facebook vice president of global marketing solutions.

Doubts remain that Twitter's ad business—which is about two years old—will ever be as big as Facebook's or Google's.

Twitter "still has a lot of growth to accomplish before they can make advertising a big business," eMarketer analyst Debra Aho Williamson said.

Still, CloudOn Inc. is a Twitter believer. The Palo Alto, Calif., business-software company said its Twitter ads helped generate close to 10,000 downloads of its free document-software app for Apple Inc.'s iPad.

Jay Zaveri, CloudOn's vice president of product and marketing, said when the start-up targeted Twitter ads in the past few months to mobile devices, about 2.5 of every 100 ads resulted in an app download—about three times the download rate of ads on Twitter.com, and better than other advertising services CloudOn has used.

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